24/7 Wall St. Insights

• Enthusiasm over the new Starbucks Corp. (NASDAQ: SBUX) CEO has worn off.
• The coffee purveyor has several problems that could take years to solve.
• Also: 2 Dividend Legends to Hold Forever.

When Starbucks Corp. (NASDAQ: SBUX) hired super CEO Brian Niccol as its new leader, the stock rose from $75 to $95. The move thrilled investors. Now that ride is over. The stock has risen only 2% in the past five days. The reality of his huge pay package and the size of challenges Starbucks faces have become front and center when it comes to share performance.

Depending on the performance of Starbucks, Niccol could make $100 million in the first year. Some baristas who work on the front line of stores make as little as $15 an hour as base pay.

Niccol will have a private plane to fly him from a special office Starbucks will build in California. From there, he can travel to Starbucks headquarters in Seattle in a private plane. People wonder why he won’t be in headquarters full time as the company struggles.

Starbucks has several problems that could take years to solve. High-priced inventory and mediocre service are among them. Global same-store sales were down 3% in the most recent quarter. Investors are used to same-store growth.

Perhaps the highest hurdle is in China. Same-store sales there fell 14% last quarter. The United States and China account for 61% of all Starbucks revenue. The company may have too many U.S. stores, based on same-store sales. Today, it has 16,730 there.

The Starbucks store count in China is 7,306, which is a footprint it plans to increase aggressively. However, its local competition in Luckin Coffee has over 20,000 locations. That is an overwhelming advantage, and one that cannot be addressed completely.

Reality has settled in, and Niccol does not look as good as he did the first day.

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